The sheer scale of the Chinese economy today makes the risk of collapse a frightening prospectby Paul Wallace / February 1, 2019 / Leave a comment
If nothing else, the annual meeting of the World Economic Forum at the Swiss mountain resort of Davos provides a barometer of fears and hopes for the coming year among international business leaders. At last week’s downbeat event the glass was falling in large part because of concern about a slowing Chinese economy. Just how concerned should the rest of us at lower altitudes be?
On the face of it, the worries of the global elite look overdone. The headline that caught everyone’s attention ahead of Davos was that Chinese GDP growth slipped in 2018 to its lowest since 1990. Yet that disappointment was one that most countries would welcome with open arms since growth remained remarkably high, at 6.6 per cent (down from 6.8 per cent in 2017).
The trouble is that China’s economic statistics, especially for GDP, are notoriously untrustworthy. In a document leaked in 2010 (recounting a private conversation with the then American ambassador in 2007), Li Keqiang, now Premier of the State Council of China, described GDP statistics as “man-made” and therefore unreliable, saying that he preferred to follow at local level electricity consumption, rail cargo and bank lending. The trajectory of national GDP is unnaturally smooth, arousing the suspicion that it projects the economy that Chinese leaders want to portray rather than the reality.
Evidence that can’t be manicured by the government suggests that the economy is doing worse than official figures show. Investors in Chinese stocks are nursing painful losses after a dire year in which the Shanghai stockmarket fell by a quarter, the worst performance in the world (other than the smaller Shenzhen index, which did even worse). The “Aussie” (Australian dollar), which offers insight into the performance of the Chinese economy because of its ravenous investment-driven appetite for resources imported from Australia such as iron ore, is down a tenth on its rate against the US dollar a year ago.
More worrying still, China’s bumpy ride appears to have become a lot bumpier in late 2018, notwithstanding the reported 6.4 per cent growth for the final quarter (compared with the same period in 2017). Asian trading partners in particular have reported a sharp fall in their exports to China in December. The value of Japan’s for example declined by 7 per cent on a year before.